Profit with faster news and research
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| $TIP |
"The credit rating agency said it thinks that even if the nation's $14.3 trillion borrowing limit isn't raised by Tuesday's deadline, the government would give priority to making interest payments on its debt and thereby avoid a default."
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| Camelina & Algae Fuels (Wikimedia) |
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| EUR/USD intraday (courtesy freestockcharts.com) |
"New York, July 29, 2011 -- Moody's Investors Service has today placed Spain's Aa2 government bond ratings on review for possible downgrade. Spain's Prime-1 short-term ratings are unaffected by today's action.
The initiation of the ratings review is driven by the following concerns:
1.) The continued funding pressures facing the Spanish government, which the precedent set for future euro area support arrangements by the official package for Greece is likely to exacerbate, and the resulting increase in risks to bondholders.
2.) The challenges posed to the government's fiscal consolidation efforts by the weak growth environment and the continued fiscal slippage among several regional governments.
Funding costs have been rising for some time for the Spanish government and for many closely related debt issuers, such as domestic banks and regional governments. Pressures are likely to increase still further following the announcement of the official package for Greece, which has signalled a clear shift in risk for bondholders of countries with high debt burdens or large budget deficits. The package has not relieved market concerns over the position of such sovereigns because (i) it sets a precedent for private sector participation in future sovereign debt restructurings in the euro area, and (ii) while an expansion of powers has been proposed for the EFSF, it is not clear when the powers will be implemented.
Moody's views positively that the central government has been successful in meeting its near-term fiscal consolidation targets, but the rating agency nonetheless notes that challenges to long-term budget balance remain due to Spain's subdued economic growth and fiscal slippage within parts of its regional and local government sector." (Continue reading the announcement at Moodys.com)
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| Source: Kazuhiko Kawahara at GCClark.net/ |
"MOODY'S PLACES Aaa RATINGS OF 177 U.S. PUBLIC FINANCE ISSUERS ON REVIEW FOR POSSIBLE DOWNGRADE DUE TO REVIEW OF U.S. GOVERNMENT'S Aaa RATING
162 LOCAL GOVERNMENTS, 14 HOUSING FINANCE PROGRAMS, AND ONE UNIVERSITY WITH COMBINED $69 BILLION OF DEBT AFFECTED
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| Courtesy of FreeStockCharts.com |
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| Courtesy of StockCharts.com |
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| Img embed source: Aster-oid on Flickr |
"LONDON (Standard & Poor's) July 27, 2011--Standard & Poor's Ratings Services today lowered its long-term sovereign credit rating on the Hellenic Republic to 'CC' from 'CCC'. At the same time we affirmed the short-term rating at 'C'. The outlook is negative. Our recovery rating of '4' for Greece remains unchanged, indicating an estimated 30%-50% recovery of principal by bondholders, including on those bonds subject to a 20% reduction in net present value (NPV) as estimated under the Institute for International Finance (IIF) proposal.
Following review of the European Council's (EC's) July 21 statement, Standard & Poor's has concluded that the proposed restructuring of Greek government debt would amount to a selective default under our rating methodology. We view the proposed restructuring as a "distressed exchange" because, based on public statements by European policymakers, it is likely to result in losses for commercial creditors. Moreover, the objective of the debt exchange/rollover is to reduce the risk of a near-term debt payment default and to give the Greek government more time to undertake fiscal consolidation and policy reforms. Under our criteria, we characterize a distressed borrower as one that would--in the absence of debt relief--fail to pay its debt on time and in full."
"Matthias Giraud and Stefan Laude capture some of the most incredible content seen by GoPro as they hit the Alps like true heroes skiing the French backcountry while escaping a large avalanche on their tails!" - (GoProCamera on Youtube)
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| Horizon of Persian Gulf in South Pars Area (Wikimedia/Alireza824) |
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| Source: Wikimedia Commons |
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| img source: financeintelligencer |
"BlackRock Inc., Franklin Templeton Investments, Loomis Sayles & Co., Pacific Investment Management Co. and Western Asset Management said the U.S. faces losing its top-level debt rating as officials struggle to raise the $14.3 trillion borrowing limit and reduce spending."
"A U.S. credit-rating cut would likely raise the nation’s borrowing costs by increasing Treasury yields by 60 to 70 basis points over the “medium term,” JPMorgan Chase & Co.’s Terry Belton said"
"In one moment, an invisible trader placed a single trade that moved the most liquid debt market in the world. The massive trade wasn't placed in bonds themselves; it was placed in the futures market. The trade was for block trades of 5,370 10-year Treasury futures executed at 124-03 and 3,100 Treasury bond futures executed at 125-01. The value of the trade was about $850 million dollars." (betting on downgrade of AAA rating)
Nomura: US Downgrade May Cause Repo Market Liquidity Freeze (Zero Hedge)"Well when the reset comes it will be say a hundred dollar bill will be exchanged for a one dollar bill or something like this. Before we have the Great Reset, the government they will increase the war effort under whatever excuse that will be but I think that is the likely course of action..." (he also talks about gold)
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| 5Y US Treasury CDS (Bloomberg) |
"There doesn't seem to be a lot of fear reflected in the pricing, as it hasn't been reflected in the Treasurys itself. If Treasurys are still trading at par or close to par that means that the CDS settlement, if there was a credit event and there was an auction, then the settlement would not be at large amounts and therefore protection holders are not going to receive large payouts if anything."
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| EURUSD after Obama's addressfreestockcharts |
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| Boehner, Obama and Reid (Whitehouse.gov) |
"If an agreement is reached to raise the debt ceiling but nothing meaningful is done in terms of deficit reduction, the U.S. would likely have its rating cut to the AA category, S&P said." (Reuters)
"The U.S. government may lose its AAA credit rating even if lawmakers reach a plan to avoid a default, said Mohamed A. El-Erian, whose Pacific Investment Management Co. is the world’s largest manager of bond funds." (Bloomberg)
"Boehner’s two-step plan would raise the U.S. borrowing limit by up to $1 trillion, with larger spending cuts, and require a new vote on more reductions before an additional $1.6 trillion debt-limit increase next year. It could be voted on in the House within two days. Obama and Senate Democrats oppose a short-term extension, which could lead to another debt standoff next year.
By contrast, Reid’s proposal would cut $2.7 trillion in spending and give Obama the full $2.4 trillion in additional borrowing authority he seeks, enough to get through the 2012 elections."
Daily Technical Report
EUR/USD, US Dollar Index (MIG Bank)
25 July, 2011
EUR/USD: Extended rebound stalls into key resistance 1.4400-1.4419.
- EUR/USD’s extended rebound (from its bullish reversal pattern near the200-day MA), has stalled into key resistance zone between 1.4400-1.4419(76.4/78.6% Fib level).
- Our outlook remains neutral/bearish, while price holds beneath key resistance at 1.4578. Failure into these levels will keep bearish risks on for a resumption of the downside pattern breakout, offering an accelerated impulsive (wave 3) into 1.3750/1.3659 (2 yr uptrend/61.8% Fib-Jan 2011 rise), thereafter squeezing further conservative trend-followers into our initial objective at 1.3370.
- Only a sustained close above 1.4578 will lead to a reassessment of our long standing bearish view, opening a potential extended recovery into previous key resistance at 1.4711/30.
- Inversely, the US dollar index is now holding steady around key support at73.50. We expect this level to hold (as the last point of defence), where a potential oversold bounce could develop."
"In the short run, Felix says, the plan, as we've seen, allows investors to exhale and markets to rally. But once the touch of euphoria plays itself out, the omens are anything but bright."
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| Courtesy of Business Insider (read more there) |
"Ironically, I'm in this book, 'The Big Short,' but I'm not a big short. I don't go out looking for good shorts. I'm spending my time looking for good longs. I shorted mortgages because I had to. Every bit of logic I had led me to this trade and I had to do it. And I had to pull back on equities, because I saw what was coming I thought would affect everything."
"I tried to raise a fund, Milton’s Opus (being Paradise Lost) to just do this because I wanted to do it in big size, but I couldn’t get it going. And the urgency came from my belief that I can’t be the only one thinking this. Somebody will see it and when they do, spreads will blow out wide. I want to get it on when it’s cheap."
"My positioning with my investors had always been from the beginning, I need 3-5 years. I saw the time clock. I knew when it was going to happen. We just needed to make it through to that period. And that was a hard sell when it moved against us initially"
"Even when there was the investor rebellion and even when we had these difficulties in ’06, I was 100% confident when it was going to happen and I would tell people: just wait. We’re on the cusp, 2007, it will happen."
"I was actually 100% confident. I thought it was a sure thing. Because basically those mortgages started going bad by late 2005 and 2006. They started going bad early."
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| Amateur footage showing aftermath of bombing |
"A bomb ripped through Oslo's central government district on Friday and a gunman dressed as a policeman then opened fire at a youth camp on a nearby island, killing at least 17 people altogether." (Reuters at Yahoo News)
Update: "A gunman shot dead at least 80 youths at a summer camp of the ruling Labour Party on Friday, police said" (Reuters)
Norway death toll may rise to 98, police say. A man named Anders Behring Breivik was arrested (Reuters)
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| Source: The Council of the European Union |
"STATEMENT BY THE HEADS OF STATE OR GOVERNMENT OF THE EURO AREA AND EU INSTITUTIONS
We reaffirm our commitment to the euro and to do whatever is needed to ensure the financial stability of the euro area as a whole and its Member States. We also reaffirm our determination to reinforce convergence, competitiveness and governance in the euro area. Since the beginning of the sovereign debt crisis, important measures have been taken to stabilize the euro area, reform the rules and develop new stabilization tools. The recovery in the euro area is well on track and the euro is based on sound economic fundamentals. But the challenges at hand have shown the need for more far reaching measures.
EURUSD Trend From 6/2010 (FreeStockCharts)
Today, we agreed on the following measures:
Greece:
1. We welcome the measures undertaken by the Greek government to stabilize public finances and reform the economy as well as the new package of measures including privatisation recently adopted by the Greek Parliament. These are unprecedented, but necessary, efforts to bring the Greek economy back on a sustainable growth path. We are conscious of the efforts that the adjustment measures entail for the Greek citizens, and are convinced that these sacrifices are indispensable for economic recovery and will contribute to the future stability and welfare of the country.
2. We agree to support a new programme for Greece and, together with the IMF and the voluntary contribution of the private sector, to fully cover the financing gap. The total official financing will amount to an estimated 109 billion euro. This programme will be designed, notably through lower interest rates and extended maturities, to decisively improve the debt sustainability and refinancing profile of Greece. We call on the IMF to continue to contribute to the financing of the new Greek programme. We intend to use the EFSF as the financing vehicle for the next disbursement. We will monitor very closely the strict implementation of the programme based on the regular assessment by the Commission in liaison with the ECB and the IMF.
EURUSD July 21-22, 2011 (FreeStockCharts)
3. We have decided to lengthen the maturity of future EFSF loans to Greece to the maximum extent possible from the current 7.5 years to a minimum of 15 years and up to 30 years with a grace period of 10 years. In this context, we will ensure adequate post programme monitoring. We will provide EFSF loans at lending rates equivalent to those of the Balance of Payments facility (currently approx. 3.5%), close to, without going below, the EFSF funding cost. We also decided to extend substantially the maturities of the existing Greek facility. This will be accompanied by a mechanism which ensures appropriate incentives to implement the programme."
"5. The financial sector has indicated its willingness to support Greece on a voluntary basis through a menu of options further strengthening overall sustainability. The net contribution of the private sector is estimated at 37 billion euro."
"Gold
Gold Charts 7/21/2011 (via MIG Bank)
Sharp correction expected beneath trigger level at 1588/82.
- Gold price activity remains fragile after its recent sharp correction. The move followed an unprecedented rise of 10 consecutive higher closes, which also triggered multiple exhaustion signals (notably DeMark™ Combo/Sequential). SEE our trade alert for more details.
- With such explosive moves (upside or downside), it is critical the market confirms a reversal beneath a filtered price/time trigger point. Watch for a sustained DAILY close beneath our trigger level at 1588/82.
- In terms of the big picture, this move is also taking place within the apex of a 12-year exhaustion pattern (illustrated on the weekly log chart), which has also developed a unique long-term DeMark™ exhaustion signal.
- Downside risk favours an initial move into key support at 1577.57 (02nd May peak) and 1558.25 (22nd June high). Meanwhile, a sustained close above 1620 will lead to a reassessment of this view.
- Gold’s COT liquidity indicator (net long positions) is also squeezed within a tight range (as Gold continued to make push to record highs on lower volume). At this stage, the risk remains for a downside breakout which would unlock over 1.5 years of sizeable gold long positions."
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| Source: Wikimedia Commons |
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| Source: The Daily Ticker (Yahoo) |
"The problem is that there are just too many excess inventories. We estimate that there are 2 to 2.5 million excess housing unit inventories over and above the normal working levels, and that's a lot. We normally build about a million and a half houses a year. Getting rid of those excess inventories, if you look at what's happening in terms of household formation and new housing being built, it will probably take 4 or 5 years, and that's plenty of time for this excess inventory to depress prices. Excess inventories are the mortal enemy of prices. We're looking for another 20% decline in house prices."
"If we have the 20% decline, which would bring us back to the long term trend inflation adjusted on house prices. If we have that, and I think that's likely, and markets often overshoot on the downside by the way so it may be a conservative estimate, the percentage of mortgages underwater by our calculations would jump from 23% now to 40%, and at that point........"
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| Source: Bloomberg |
"If there is either a financial crisis or recession in Europe, one would trigger the other (the U.S.). And given that the U.S. is not in the greatest shape to start with, possibly with deficit reduction of our own that might be excessive, we could easily be knocked into recession by that. So between our own political questions, and political questions in Europe, and severe private sector balance sheet problems in both continents, it is not a pretty nice picture.
"Number 1, protect capital. Treasurys are I think a spectacular way right now to do that. And unlike a lot of people, I think Treasury yields are going to go down. The yield may not be attractive, but the capital gains bonds will bring over the next year or two, if you can ride out a little bit of daily noise, I think is very attractive."
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| image from b-e-m on flickr |
Hedge fund manager Ray Dalio, founder of Bridgewater Associates, was interviewed by The New Yorker and at the end of the article Dalio gave some pessimistic views on currencies and economic growth going forward. He thinks "late 2012 or early 2013 is going to be another very difficult period". But what does Dalio think about the reflation trade going forward (equities and commodities)? This is important...Now that the slowdown appears to have arrived, Dalio thinks it will be prolonged. “We are still in a deleveraging period,” he said. “We will be in a deleveraging period for ten years or more.”
“There hasn’t been a case in history where they haven’t eventually printed money and devalued their currency,” he said. Other developed countries, particularly those tied to the euro and thus to the European Central Bank, don’t have the option of printing money and are destined to undergo “classic depressions,” Dalio said.
Read the full story at The New Yorker
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| Iranian Rial (Wikimedia Commons) |
"MOODY'S PLACES RATINGS OF FIVE OF 15 Aaa STATES ON REVIEW FOR POSSIBLE DOWNGRADE DUE TO U.S. SOVEREIGN RISK VULNERABILITY
PPROXIMATELY $24 BILLION OF RATED DEBT AFFECTED; HIGH FEDERAL EMPLOYMENT AND MEDICAID EXPOSURE CITED
New York, July 19, 2011 -- Moody's Investors Service has placed on review for possible downgrade the Aaa ratings of the states of Maryland, New Mexico, South Carolina, Tennessee, and the Commonwealth of Virginia. In connection with Moody's July 13 action placing the Aaa government bond rating of the United States on review for downgrade, Moody's announced that it would assess the ratings of Aaa-rated states to gauge their sensitivity to sovereign risk. The review actions affect a combined $24 billion of general obligations and related debt.
Should the U.S. government's rating be downgraded to Aa1 or lower, these five states' ratings would likely be downgraded as well. Moody's will review the ratings of the five states on a case-by-case basis and announce any rating actions within seven to ten days following a sovereign action.
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| EUR/USD, US Dollar Index |
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| BNY Mellon's Simon Derrick on BloombergTV |
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| EUR/USD (FreeStockCharts.com) He's betting on a trend breakdown |
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| Source: Bloomberg |
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| Wall Street (Source: Jpellgen on Flickr) |
"“We are looking for a more severe down move in prices, for a better level to buy,” said Jeffrey Gundlach"
“Gundlach, the chief executive officer of Los Angeles-based DoubleLine Capital Inc., said in a telephone interview that he has 10 percent of the fund’s assets in cash, about five times what it usually holds. He views a move in the 10-year Treasury yield above 3.5 percent as a buying opportunity."
“The Swiss franc looks like it will go to par with the euro,” said John Taylor, founder of FX Concepts LLC in New York, the world’s largest currency hedge fund." (hat tip ZH)
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| GLD/SPY (see below) |
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| 30Y T-bond Price (see larger view below) |
"United States of America 'AAA/A-1+' Ratings Placed On CreditWatch Negative On Rising Risk Of Policy Stalemate Overview
Overview
• Standard & Poor's has placed its 'AAA' long-term and 'A-1+' short-term sovereign credit ratings on the United States of America on CreditWatch with negative implications.
• Standard & Poor's uses CreditWatch to indicate a substantial likelihood of it taking a rating action within the next 90 days, or in response to events presenting significant uncertainty to the creditworthiness of an issuer. Today's CreditWatch placement signals our view that, owing to the dynamics of the political debate on the debt ceiling, there is at least a one-in-two likelihood that we could lower the long-term rating on the U.S. within the next 90 days. We have also placed our short-term rating on the U.S. on CreditWatch negative, reflecting our view that the current situation presents such significant uncertainty to the U.S.' creditworthiness.
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| Tajikistan via Babasteve on Flickr (cc) |
"Clearly if we went so far as to default on our debt it would be a major crisis because the Treasury security is viewed as the safest and most liquid security in the world. It is the foundation for much of our financial system and the notion that it would become suddenly unreliable and illiquid would throw shockwaves through the entire global financial system" (At 57:18 in the CSPAN video below)
"However, given the range of uncertainties about the strength of the recovery and prospects for inflation over the medium term, the Federal Reserve remains prepared to respond should economic developments indicate that an adjustment in the stance of monetary policy would be appropriate.
On the one hand, the possibility remains that the recent economic weakness may prove more persistent than expected and that deflationary risks might reemerge, implying a need for additional policy support. Even with the federal funds rate close to zero, we have a number of ways in which we could act to ease financial conditions further."
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| Total Federal Government Public Debt (St. Louis Fed) |
"New York, July 13, 2011 -- Moody's Investors Service has placed the Aaa bond rating of the government of the United States on review for possible downgrade given the rising possibility that the statutory debt limit will not be raised on a timely basis, leading to a default on US Treasury debt obligations. On June 2, Moody's had announced that a rating review would be likely in mid July unless there was meaningful progress in negotiations to raise the debt limit.
In conjunction with this action, Moody's has placed on review for possible downgrade the Aaa ratings of financial institutions directly linked to the US government: Fannie Mae, Freddie Mac, the Federal Home Loan Banks, and the Federal Farm Credit Banks. We have also placed on review for possible downgrade securities either guaranteed by, backed by collateral securities issued by, or otherwise directly linked to the US government or the affected financial institutions.
RATIONALE FOR REVIEW
"EUR/USD
EUR/USD (MIG Bank)
Breaks out of triangular consolidation.
- EUR/USD has resumed its bearish activity and has broken out of the all important triangular consolidation pattern.
- The move follows last Friday’s worse-than-expected NFP figures which paradoxically pushed the US dollar higher, as market sentiment refocused back onto risk aversion and a flight to traditional quality/safe haven assets.
- Our short position favours sustained weakness to unlock an accelerated impulsive (wave 3) into 1.3670 (61.8% Fib-Jan 2011 uptrend). Only a sustained close above 1.4653 and most importantly 1.4711/30 will lead us to re-evaluate.
- Inversely, the US dollar index has broken above 76.36 (23rd May high), to confirm a multi-month w-shaped base pattern for an extension into 7701 and 78.03 (50%/61.8% Fib-Jan 2011 Decline).
- Further upside scope is also being supported by increased long positions on our COT liquidity, which has been positive for the last 6 weeks."
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| EUR/USD (FreeStockCharts.com) |
"Frankfurt am Main, July 12, 2011 -- Moody's Investors Service has today downgraded Ireland's foreign- and local-currency government bond ratings by one notch to Ba1 from Baa3. The outlook on the ratings remains negative.
FOMC Minutes vs. Ireland Downgrade
Dow Industrials via StockCharts.com
The key driver for today's rating action is the growing possibility that following the end of the current EU/IMF support programme at year-end 2013 Ireland is likely to need further rounds of official financing before it can return to the private market, and the increasing possibility that private sector creditor participation will be required as a precondition for such additional support, in line with recent EU government proposals.
As stated in Moody's recent comment, entitled "Calls for Banks to Share Greek Burden Are Credit Negative for Sovereigns Unable to Access Market Funding" (published on 11 July as part of Moody's Weekly Credit Outlook), the prospect of any form of private sector participation in debt relief is negative for holders of distressed sovereign debt. This is a key factor in Moody's ongoing assessment of debt-burdened euro area sovereigns.
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